For the use of the term in politics, see hard money (politics).

Hard money policies are those which are against Fiat money and therefore usually in support of the Gold standard, or other standard based on other precious substances.


Hard money also refers to a type of commercial real estate loan product that requires real estate backing. Hard money is most commonly used as a type of bridge loan for temporary financing.

A Hard Money Loan is a loan in which real estate serves as the collateral asset. As with other collateralized loans, the size, rate, and length of a hard money loan is determined by the borrower’s equity in the asset, the volatility of the asset and marketplace, and the financial standing of the borrower. Hard money loans are funded for business and personal use. The real estate asset may be business or personal property, and the proceeds of hard money loans are not restricted to business use.

Each hard money lender determines the parameters and/or restrictions they will impose on hard money loans. Below is a simple example of a hard money loan for business use:

Loan Size $6,300,000 Property Description 31 Condos LTV 52% Use of Funds Project completion, partner buyout Here’s what the information in the hard money example above means:

Loan Size – The amount of the hard money loan is self-explanatory: a hard money loan for 6.3 million dollars was made to a borrower.

Property description – The property description indicates that this hard money loan was made for business purposes.

LTV (loan to value) - in this hard money example indicates that the $6.3 million dollars represents 52% of the value of the property. The property value in this case is $12.1 million dollars. The borrower’s equity in the property is 48% or $5.8 million – the difference between the value of the property ($12.1 million) and loan amount (52% of $12.1 million = $6.3 million).

Use of Funds – In this case, the borrower used the hard money funding as a bridge loan to complete the development of a condominium building/complex, as well as using the funds to buy out a partner.

Use of Funds for Hard Money Loan Hard money lenders establish criteria for the use of funds. Flexibility in the parameters concerning the use of hard money loan proceeds does not necessarily translate to higher rates. For example, Avatar Financial Group of Seattle, WA offers some of the lowest rates in the hard money lending industry and still offers substantial flexibility in the use of funds.

“The use of funds needs to make financial sense,” explains TR Hazelrigg, president of the Avatar Financial Group (http://www.avatarfinancial.com/aboutus.php), a hard money lender in Washington state.

“We've made hard money loans to individuals with resident alien status who could not get bank funding for their personal residence. We've made loans to renovate a residential property that belonged to an estate, so that the family of the deceased could realize the full financial potential of the property. As long as the use of funds makes financial sense and there is a clear, demonstrable method of repayment of the loan within the parameters set out by the contract, the use of funds is not unduly restricted,” Hazelrigg explains.

When Hard Money Makes Sense Hard money is more expensive than bank mortgage loans. However, hard money makes sense in many business and personal scenarios. The most common uses of hard money is for business purposes, when time is of the essence and when the borrower or the asset do not fall within the often stringent loan criteria (also known as the ‘sweet spot’) for banks.

Hard money is often used as a bridge loan for real estate purchases – a short term financing solution for any number of reasons, either to avoid a probem or take advantage of an opportunity.

•On the flip side, hard money may be used by the current owner of a property to save it from foreclosure.
•Hard money is used to finance business acquisitions/mergers.
• Business turnaround strategies may make use of hard money, as the borrower often does not meet bank financing criteria.

The examples above demonstrates the use of hard money as a bridge loan solution for commercial real estate from the completion phase of construction until the property reaches economic stability.

Hard money is an expedient option for the restructuring of debt or to avoid corporate or personal bankruptcy. When instant cash flow is required, and bank loans would take too long or the borrower does not meet bank lending criteria, hard money may be used to meet environmental protection agency mandates, taxes, fines and/or levies.

In any circumstance in which the borrower or the real estate asset does not meet bank lending criteria, whether it be current financial status or financial history, type of property, legal residential or citizenship status of the borrower, or other, hard money can often provide a swift temporary or permanent solution.

Hard Money Loan Terms and Conditions Hard money loan terms and conditions differ from bank or mortgage loans. Due to the increased risk of working with more relaxed or flexible criteria than banks, hard money loans have shorter terms and higher rates. However, in order to make hard money loans a viable solution for borrowers, hard money lenders may structure the financing of the loan in creative ways.

Some lenders have structured hard money loans such that a portion of the interest owed was deferred and included in balloon payment at a future date. This yielded affordable monthly payments for an immediate solution and provided for payment of the additional interest in the future, giving borrowers time to arrange for long term financing and/or be reach a financial maturity in the funded projects so that the balloon payment could be made.

Here are some terms you are likely to find in hard money loans:

• Loan terms from one to three years
• Higher interest rates than found in bank or traditional mortgage financing
• Higher points, which may be required to be paid in advance
• The possibility of participation in the success of the venture, in the form of a back-end fee, deferred interest, or balloon payment

See also

• Commercial Lenders
• Bridge Loans
• Hard Money Lenders
• Mortgages

External links

• Hard Money Lenders (http://www.avatarfinancial.com) - more detailed information.
• Financial Organizations (http://www.realestatepromo.com/money/) specializing in hard money.